Jeff PrestridgeSep 5 2018

A financial suit of armour

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A financial suit of armour
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Of course, we can hope that a satisfactory Brexit deal will be struck in the months ahead, between the UK and our European Union partners.

We can also marvel at the continued resilience of the country’s labour market, the strength of the UK stock market and the robustness of the housing market.

But the economic storm clouds are out there gathering en masse. While higher interest rates may have been greeted with glee by many savers, they are bad news for the country’s indebted (and don’t we, as a nation, love our debt). 

As for the future, interest rates are only going one way; up and up again, compromising the finances of many households.

Inflation remains an irritant, eating away at our deposit savings. Especially so when the likes of Nationwide Building Society (yes, that big cuddly mutual) refuses to pass on the recent 0.25 percentage point rise in the bank base rate to savers.

The pound also continues to weaken on the prospect of no deal being struck on Brexit, in turn sucking imported inflation into the economic system. It will only take the housing market or stock market to implode to ensure the storm clouds come rolling in up the English Channel.

As for the high street, it is an unmitigated disaster.

Most people have no idea such cover exists, mistakenly believing that if serious illness comes their way their employer will come riding to the rescue over the horizon – like a knight in shining armour. 

Despite the economic benefits derived from a ‘good’ World Cup and a long, hot summer, the country’s retail community is being blighted by swingeing business rates, the tax-light treatment of many big online retailers and the retreat of the banks from the high street.

How long can the government just sit on its hands while our town centres are obliterated?

Against this rather uncertain and gloomy economic backdrop, it is rather alarming (but not surprising) to read research indicating that most households are currently in no financial state to withstand a recession. They are literally living on a financial edge.

The ‘Cost of Resilience’ research, put together by insurer Zurich, paints a rather stark picture.

More winter than summer-like in tone, it states that one in three Brits (17.6m people) do not believe they have sufficient inbuilt financial resilience to withstand a shock to their household finances – be it a loss of income caused by redundancy or long-term illness, or an unexpected large bill landing on their door mat.

Almost a quarter of adults, the report concludes, have no savings whatsoever to fall back on if their household’s finances are suddenly plunged into chaos.

It also confirms that the ‘availability heuristic’ is very much at play, with most adults prioritising financial products that provide solutions to everyday problems.

In other words, when it comes to a choice of home, motor or holiday insurance over income protection cover, they will invariably opt for the former because the chances of making a claim are that much higher.

You could argue that Zurich’s work treads rather worn ground. It is merely reinforcing facts we already know. Namely, that despite the introduction of pension auto-enrolment and generous annual Isa allowances, most of us are not saving enough for the future.

Our eye, understandably, is more focused on dealing with financial survival in the present than concentrating on how to build for the future.

It also confirms the well-known fact that irrespective of the merits of income protection insurance, it still remains a hard product to sell, especially when other insurances are either compulsory or seem more important.

Most people are prepared to gamble on the fact they will go through employment without being derailed by serious illness – but not on the chances of someone at some stage coming into their home and running off with a sackful of their priceless possessions.

As Dr Jack Lewis, a neuroscientist and a key figure in the production of Zurich’s report, says: “Examples of when car, home and holiday insurance could come to the rescue are simply much more available than the benefits of income protection, because they are more commonly encountered in everyday life.”

Some may argue that Zurich’s research is merely a subtle way of the insurer promoting a product it needs to sell in order to generate revenue and profits. That may well be the case, but the fact remains that for all the good of the 2014 Seven Families campaign – an industry-wide initiative designed to raise awareness about protection cover, and which Zurich supported to the hilt – insurance protection remains something of a mystery.

Those who have bought it understand the reassurance it brings. Those who have successfully claimed on it cannot speak more highly about the product. But they are sadly in a minority.

Most people have no idea such cover exists, mistakenly believing that if serious illness comes their way their employer will come riding to the rescue over the horizon – like a knight in shining armour. 

If I were a financial adviser, I would use the research as a tool to impress upon clients – and potential clients – the need for good old income protection insurance as part of their financial armoury. Their shining financial armoury.

Jeff Prestridge is personal finance editor of the Mail on Sunday